Forrester: One vendor manager to five suppliers is ‘ideal’ ratio

Successful vendor management requires organisations to have one manager for every five suppliers, according to Forrester.

Anh Nguyen
November 18, 2010

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Successful vendor management requires organisations to have one manager for every five suppliers, according to Forrester.

“We see a one to 10 ratio [one vendor manager to 10 suppliers], but the ideal ratio is one to five, so that you can really measure their performance and actively manage them,” Patrick Connaughton, principal analyst at Forrester told Forrester’s Sourcing and Vendor Management Forum in London today.

Connaughton recognised that the number of staff in a vendor management function is driven by the maturity of the organisation’s processes. However, a recent Forrester survey revealed that most vendor management offices (57 percent) have between two and 10 employees, with the majority reporting closer to two than ten.

To make the most of their limited resources, Connaughton made some recommendations for what vendor managers can do in the short term, starting with spend analysis.

“Identify those areas of maverick spend for early big wins to gain credibility within your organisation,” he said.

In their spend analyses, businesses need to be able to identify who their vendors are, how much they are spending with each, and see if there are any inconsistencies in pricing across units. By doing this, vendor mangers can then see if there are any overlaps in the services they receive from suppliers, and then consider opportunities for consolidation.

Connaughton added: “If you don’t have the resources to do [manual] spend analysis, an automated spend analysis will help you with that.”

In addition to measuring risk, Connaughton believed that vendor managers should measure vendor innovation as part of their “supplier health checks”.

“You need to make innovation a critical element of your scorecards,” he said. “Bring in your vendors to work with you to help drive innovation. You as vendor managers have to own that process – you have to invite the vendors to the table and they have to understand what your strategy is all about.”

Although there are a range of software tools in the market that can help businesses measure the performance of their suppliers, Connaughton warned that they are typically weak in the area of risk analysis.

“They [the software tools] provide the supplier workspace, where you can view goals, scores, and help you to collect data and monitor results, but when it comes to analysing results and creating plans, they fall short,” he said.

“You want to focus on initially getting the supplier database set up, but you can’t assume that the software tools will help you analyse your risk.”

As well as measuring and monitoring suppliers, vendor managers could also benefit from measuring their own ROI. Forrester research has found that 95 percent of vendor managers do not measure their own performance.

“Measure how much you’ve [vendor managers] reduced cycle time, how fast you can find contracts, how many performance reports you’re creating, how long you’re taking to do it when an executive asks for it,” Connaughton suggested.

In the long term, Connaughton said that vendor managers should focus on activities to optimise their function, such as streamlining the contract lifecycle and showcasing the vendor management division’s innovation with new tools. They should also have a view to create a “next-generation playbook”, which may include outlines such as how to define mandates, and how to define the ROI of the vendor manager.